From the blog: Pension transfer advisers are stuck between a rock and a hard place.
The Financial Conduct Authority is taking an intrusive and robust approach to regulating the industry, in many cases closing down businesses because they are not satisfied with their advice and methods.
But at the same time, in the FCA’s own consultation paper published in January, the watchdog implicitly admitted that its current guidance on what is expected of these advisers is unclear.
But at the same time, in the FCA’s own consultation paper published in January, the watchdog implicitly admitted that its current guidance on what is expected of these advisers is unclear.
This confusion extends beyond how pension transfer specialists gather information and come to their conclusions. There is also a question mark over the role of pension transfer advisers when checking the work of other financial advisers, and their duty to clients.
The consultation paper distinguishes between a "check" (required) and a "fundamental repeat" (not required) of the advice process, without clarifying where it draws the line. This is a worrying position for any business involved – directly or indirectly – in advising on defined benefit transfers, from pension funds to IFAs and their clients.
Scrutinise the receiving scheme
Pension transfer advice is a particularly niche field and these specialists are in limited supply. If demand grows and the FCA culls the market by withdrawing their licences to trade, there is a danger of reduced standards and clients losing out through delays.
So, how do you win a game without knowing the rules? Can something so fundamental to the licence to operate really be left to chance? And how can advisers prepare for an FCA assessment?
As part of any visit, the FCA will consider the advisory firm's business model, defined benefit transfer advice process, the controls in place and who, if anyone, has oversight of the advice.
The FCA is likely to issue requests for information and documentation, and to carry out detailed file reviews. Particular emphasis will be placed on a comparison of the DB scheme with the receiving scheme, so advisers need to have detailed information and a thorough understanding of the receiving scheme and the assets in which the client's funds would be invested.
FCA cracks down on transfer advice
Pension consultants have welcomed the Financial Conduct Authority’s adoption of a tough stance on companies advising on defined benefit transfers, calling it a “price worth paying” for member security in retirement.
There are five important steps that advisers can take to get ahead:
1. Check existing processes for compliance with the Conduct of Business Sourcebook rules and regulatory requirements.
2. Check that every stage of the advice process, including generic product literature, is documented and evidenced.
3. Ensure you can evidence that senior management have oversight of the business.
4. Consider instructing an independent party to carry out file reviews and to monitor and assess advice.
5. Any appeals process or complaint-handling for clients who are dissatisfied with an adviser's initial advice should be scrutinised for root cause analysis – could the FCA use it to point to weaknesses in the advice process?
Emily Benson is partner and head of financial services regulation at law firm TLT
